U.S. patent number 7,890,403 [Application Number 12/482,902] was granted by the patent office on 2011-02-15 for systems and methods for implementing real estate future market value insurance.
This patent grant is currently assigned to United Services Automobile Association (USAA). Invention is credited to Bradly Jay Billman, Arthur Quentin Smith.
United States Patent |
7,890,403 |
Smith , et al. |
February 15, 2011 |
Systems and methods for implementing real estate future market
value insurance
Abstract
A method and mechanism that protect a person with a property
interest in a piece of real property against a loss of expected
future market value of the real property. A policyholder may first
select an expected future market value for the real property and a
time period in which the expected future market value is to be
attained (e.g., 10 years). An insurer may model relevant
conditions, factors and events that effect property values over
time for a particular geographic region. A premium may be
determined based on the selected expected future market value and
the determination of expected future market value made by the
insurer. Upon a conveyance of the real property at the time period
or window specified, a loss may be determined if the fair market
value of the real property is less than the selected expected
future market value.
Inventors: |
Smith; Arthur Quentin
(Fredericksburg, TX), Billman; Bradly Jay (San Antonio,
TX) |
Assignee: |
United Services Automobile
Association (USAA) (San Antonio, TX)
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Family
ID: |
43568632 |
Appl.
No.: |
12/482,902 |
Filed: |
June 11, 2009 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
Issue Date |
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12192396 |
Aug 15, 2008 |
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Current U.S.
Class: |
705/35; 706/17;
705/4; 705/306; 707/758 |
Current CPC
Class: |
G06Q
40/04 (20130101); G06Q 40/00 (20130101); G06Q
40/06 (20130101); G06Q 30/0278 (20130101); G06Q
40/08 (20130101) |
Current International
Class: |
G06Q
40/00 (20060101) |
Field of
Search: |
;705/42,4,10,306
;706/21 |
References Cited
[Referenced By]
U.S. Patent Documents
Other References
Rohner, Ralph J.: "137 TILA "Finance" and "Other" Charges in
Open-End Credit: The Cost-of-Credit Principle Applied to Charges
for Optional Products or Services", Westlaw, Loyal Consumer Law
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"Residual Value Insurance for Commercial Shipping Vessels," Jul.
31, 2004; retrieved from the Internet:
<http://www.londonspecialrisks.com/pdfs/Ship%20RVI.pdf>, 3
pages total. cited by other .
Atkinson, "Car Insurers Hit By Ringing Fraud," The Guardian
(London), Aug. 9, 1990, 2 pages total. cited by other .
Russell et al., Catastrophe Insurance, Dynamic Premium Strategies,
and the Market for Capital,: Paper prepared for 1995 NAIC/ARIA
Symposium Issues in Insurance Regulation. Published in Alternative
Approaches to Insurance Regulation, National Association of
Insurance Commissioners, 1998; retrieved from the Internet:
<http://faculty.haas.berkeley.edu/jaffee/Papers/Naicfin.PDFf>,
32 pages total. cited by other .
State of West Virginia Offices of Insurance Commissioner, "A
Financial Analysis of Homeowners Insurance,", Jul. 2004, 29 pages
total. cited by other .
Van Der Hoeven, "After the Storm: What is a tree worth?", North
Carolina Cooperative Extension Service, North Carolina State
University, Jan. 31, 2001; retrieved from the Internet:
<http://www.ag-econ.ncsu.edu/faculty/vanderhoeven/TREELOSS.PDF>,
4 pages total. cited by other .
Namic Online, "Homeowners Should Review Policies," Feb. 28, 2001.
Retrieved from the Internet: <
http://www.namic.org/consumer/policies.asp>, 3 pages total.
cited by other .
Waddell, "Homeowner's Insurance," HE-0665, Alabama Cooperative
Extension System (Alabama A&M University and Auburn
University), Reprinted Oct. 1998. Retrieved from the Internet: <
http://www.aces.edu/pubs/docs/H/HE-0665/>, 6 pages total. cited
by other.
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Primary Examiner: Colbert; Ella
Assistant Examiner: Ojiaku; Chika
Attorney, Agent or Firm: Kilpatrick Townsend & Stockton
LLP
Parent Case Text
CROSS-REFERENCE TO RELATED APPLICATIONS
The present application is a continuation in-part of U.S. patent
application Ser. No. 12/192,396, filed Aug. 15, 2008, which is
incorporated herein by reference in its entirety.
Claims
What is claimed is:
1. A method for protecting a person against a loss with respect to
an expected future market value of real property prior to or at a
predetermined time in the future, the method comprising: providing
a processor; defining events that have a statistically relevant
effect on market value over time; modeling, using the processor,
the events to determine the expected future market value for the
real property prior to and at the predetermined time, wherein the
expected future market value represents an increase over a present
fair market value; defining a premium amount for a policy to
protect against the loss based on the likelihood that the real
property will attain the expected future market value at the
predetermined time; determining, using the processor, an actual
market value of the real property prior to or at the predetermined
time, wherein the actual market value of the real property prior to
or at the predetermined time is less than the expected future
market value for the real property prior to or at the predetermined
time; determining, prior to or at the predetermined time, that the
loss has occurred, wherein the loss is equal to the actual market
value of the real property prior to or at the predetermined time
less the expected future market value prior to or at the
predetermined time; receiving a notification that the real property
was conveyed in an arm's length transaction; and thereafter,
covering the loss.
2. The method of claim 1, further comprising defining the
statistically relevant effect on market value over time for a
particular geographic location.
3. The method of claim 1, wherein the expected future market value
is modeled as a distribution curve.
4. The method of claim 3, further comprising updating, using the
processor, the modeling on a periodic basis to reflect changes in
the events.
5. The method of claim 1, wherein the events include one of a
recession, real estate crash, infrastructure changes, population
growth, job growth, land deformation, school quality, inflation,
mortgage rate trends or access to recreational facilities.
6. The method of claim 1, further comprising determining the
expected future market value in accordance with a present market
value and historical appreciation.
7. The method of claim 1, wherein the loss is covered if the loss
is based on overall market conditions external to the real
property.
8. A system of protecting real property against a loss of expected
future market value, comprising: at least one subsystem that
determines conditions that affect real property values in a
geographic region where the real property is located; at least one
subsystem that creates a model of the conditions to determine the
effect each condition has on real property value over time; at
least one subsystem that applies the model to a present fair market
value of the real property; at least one subsystem that determines
the expected future market value of the real property at a future
date, wherein the expected future market value represents an
increase over the present fair market value; at least one subsystem
that determines the loss to be an amount by which an actual market
value of the real property on the future date is less than the
expected future market value; and at least one subsystem that
issues an insurance policy to cover the loss in the event that the
real property is conveyed in an arm's length transaction on or
after the future date.
9. The system of claim 8, wherein the conditions are those having a
statistically relevant effect on real property values over
time.
10. The system of claim 9, wherein the conditions include one of a
recession, real estate crash, infrastructure changes, population
growth, job growth, land deformation, school quality, inflation,
mortgage rate trends, access to recreational facilities or
historical appreciation.
11. The system of claim 8, wherein the model is a linear
distribution model of the conditions that affect real property
values.
12. The system of claim 8, wherein a percentage of the loss is
covered to account for policy conditions and a determination of
market conditions.
13. A system of protecting real property against a loss of expected
future market value, comprising: at least one subsystem that models
conditions that have a statistical effect on real property values
in a geographic region; at least one subsystem that applies the
modeled conditions to the real property to determine a distribution
curve of the expected future market value of the real property at a
future date, wherein the expected future market value represents an
increase over a present fair market value; at least one subsystem
that determines a premium associated with a policy to protect
against the loss based on a selected expected future market value
along the distribution curve; at least one subsystem that
determines an actual market value of the real property at the
future date, wherein the actual market value of the real property
at the future date is less than the expected future market value
for the real property at the future date; at least one subsystem
that determines that the loss has occurred at the future date,
wherein the loss is equal to the actual market value of the real
property at the future date less the expected future market value
at the future date; and at least one subsystem that covers the loss
at the future date in the event of a conveyance of the real
property.
14. The system of claim 13, wherein the conditions are modeled over
time from present time to a future date.
15. The system of claim 14, wherein the conditions include one of a
recession, real estate crash, infrastructure changes, population
growth, job growth, land deformation, school quality, inflation,
mortgage rate trends, access to recreational facilities or
historical appreciation.
16. The system of claim 13, wherein the premium is relatively lower
if the selected market future market value is below a mean value
and relatively higher if the selected market future market value is
above a mean value.
17. The system of claim 16, wherein an insurer may decline a policy
request if the selected market future market value is more than a
predetermined number of standard deviations from the mean.
Description
FIELD
The present disclosure is directed to systems and methods that
provided an insurance policy that covers a loss in market value
associated with real estate.
BACKGROUND
An owner of a piece of real property may purchase property owners
insurance to protect against losses associated with the real
property, such as for example fire damage, wind damage, water
damage, and other damage that may be experienced in connection with
the property. Accordingly, if for example a tree is blown down and
falls into a structure on the real property, such property owners
insurance would typically cover the cost to repair the structure.
However, and significantly, the property owners insurance likely
does not cover the cost to replace the fallen tree with a similar
tree, even if the fallen tree represented an amount of value to the
real property that has been lost.
Real property normally increases in value over time due to market
conditions based on factors such as a finite amount of land,
inflation, and regional real estate development. However, the value
of real property can nevertheless decrease due to adverse market
conditions as well as losses in connection with the real property
that are perceived to be adverse to the overall desirability of the
real property. Some devaluations are permanent. Such losses are not
generally covered by a property insurance policies.
SUMMARY
A method and mechanism that protect a person with a property
interest in a piece of real property against a loss of expected
future market value of the real property. A policyholder may first
select an expected future market value for the real property and a
time period in which the expected future market value is to be
attained (e.g., 10 years). An insurer may model relevant
conditions, factors and events that effect property values over
time for a particular geographic region. A premium may be
determined based on the selected expected future market value and
the determination of expected future market value made by the
insurer. Upon a conveyance of the real property at the time period
or window specified, a loss may be determined if the fair market
value of the real property is less than the selected expected
future market value.
To issue the policy, the conditions, factors and events identified
may be applied to present fair market value of the real property to
model the expected future market value. The expected future market
value may be determined as a distribution curve, which may be used
to set the premium. The model may be run periodically to adjust the
premium and to account for current market conditions.
According to an embodiment of the present invention, a system of
protecting real property against a loss of expected future market
value is provided. The system includes at least one subsystem that
determines conditions that affect property values in a geographic
region where the real property is located and at least one
subsystem that creates a model of the conditions to determine the
affect each condition has on property value over time. The system
also includes at least one subsystem that applies the model to a
present fair market value of the real property and at least one
subsystem that determines the expected future market value of the
real property at a future date. The system further includes at
least one subsystem that issues an insurance policy to cover a
difference between an actual market value and the expected future
market value at the future date. In a particular embodiment, the
conditions are those having a statistically relevant effect on
property values over time. In another particular embodiment, the
system additionally includes at least one subsystem that defines
the loss as occurring upon a conveyance of the real property in a
transaction between two unrelated parties.
According to another embodiment of the present invention, a system
of protecting real property against a loss of expected future
market value is provided. The system includes at least one
subsystem that models conditions that have a statistical effect on
property values in a geographic region and at least one subsystem
that applies the modeled conditions to the real property to
determine a distribution curve of the expected future market value
of the real property at a future date. The system also includes at
least one subsystem that determines a premium associated with a
policy to protect against the loss based on a selected expected
future market value along the distribution curve. The system
further includes at least one subsystem that covers the loss as a
difference between an actual market value of the real property and
the expected future market value at the future date in the event of
a conveyance of the real property.
BRIEF DESCRIPTION OF THE DRAWINGS
The foregoing summary, as well as the following detailed
description of various embodiments of the present innovation, will
be better understood when read in conjunction with the appended
drawings. For the purpose of illustrating the embodiments, there
are shown in the drawings embodiments which are presently
envisioned. As should be understood, however, the embodiments of
the present innovation are not limited to the precise arrangements
and instrumentalities shown. In the drawings:
FIG. 1 is a block diagram of an example of a computing environment
within which various embodiments of the present innovation may be
implemented;
FIG. 2 is a block diagram of a system including a real estate value
insurance policy to an owner of real property in accordance with
various embodiments of the present innovation; and
FIG. 3 is a flow diagram showing actions performed in the
connection with the policy of FIG. 2 in accordance with various
embodiments of the present innovation;
FIG. 4 is a flow diagram showing actions performed in the course of
the issuer issuing the policy of FIG. 2 in accordance with various
embodiments of the present innovation;
FIG. 5 is a chart showing a risk matrix as may be constructed by
the issuer in the course of issuing the policy of FIG. 2 in
accordance with various embodiments of the present innovation;
FIG. 6 is a flow diagram showing actions performed in the
connection with the policy of FIG. 2 in accordance with an expected
future market value component of the present innovation;
FIG. 7 is a flow diagram showing actions performed in the course of
the issuer issuing the policy of FIG. 2 in accordance with the
expected future market value component of the present
innovation;
FIG. 8 is a chart showing a risk matrix as may be constructed by
the issuer in the course of issuing the policy of FIG. 2 in
accordance with the expected future market value component of the
present innovation; and
FIG. 9 is an exemplary distribution of expected future market
values of a piece of real property.
DETAILED DESCRIPTION
Example Computing Environment
FIG. 1 is set forth herein as an exemplary computing environment in
which various embodiments of the present innovation may be
implemented. The computing system environment is only one example
of a suitable computing environment and is not intended to suggest
any limitation as to the scope of use or functionality. Numerous
other general purpose or special purpose computing system
environments or configurations may be used. Examples of well-known
computing systems, environments, and/or configurations that may be
suitable for use include, but are not limited to, personal
computers (PCs), server computers, handheld or laptop devices,
multi-processor systems, microprocessor-based systems, network PCs,
minicomputers, mainframe computers, embedded systems, distributed
computing environments that include any of the above systems or
devices, and the like.
Computer-executable instructions such as program modules executed
by a computer may be used. Generally, program modules include
routines, programs, objects, components, data structures, etc. that
perform particular tasks or implement particular abstract data
types. Distributed computing environments may be used where tasks
are performed by remote processing devices that are linked through
a communications network or other data transmission medium. In a
distributed computing environment, program modules and other data
may be located in both local and remote computer storage media
including memory storage devices.
With reference to FIG. 1, an exemplary system for implementing
aspects described herein includes a computing device, such as
computing device 100. In its most basic configuration, computing
device 100 typically includes at least one processing unit 102 and
memory 104. Depending on the exact configuration and type of
computing device, memory 104 may be volatile (such as random access
memory (RAM)), non-volatile (such as read-only memory (ROM), flash
memory, etc.), or some combination of the two. This most basic
configuration is illustrated in FIG. 1 by dashed line 106.
Computing device 100 may have additional features/functionality.
For example, computing device 100 may include additional storage
(removable and/or non-removable) including, but not limited to,
magnetic or optical disks or tape. Such additional storage is
illustrated in FIG. 1 by removable storage 108 and non-removable
storage 110.
Computing device 100 typically includes or is provided with a
variety of computer-readable media. Computer-readable media can be
any available media that can be accessed by computing device 100
and includes both volatile and non-volatile media, removable and
non-removable media. By way of example, and not limitation,
computer-readable media may comprise computer storage media and
communication media.
Computer storage media includes volatile and non-volatile,
removable and non-removable media implemented in any method or
technology for storage of information such as computer-readable
instructions, data structures, program modules or other data.
Memory 104, removable storage 108, and non-removable storage 110
are all examples of computer storage media. Computer storage media
includes, but is not limited to, RAM, ROM, electrically erasable
programmable read-only memory (EEPROM), flash memory or other
memory technology, CD-ROM, digital versatile disks (DVD) or other
optical storage, magnetic cassettes, magnetic tape, magnetic disk
storage or other magnetic storage devices, or any other medium
which can be used to store the desired information and which can
accessed by computing device 100. Any such computer storage media
may be part of computing device 100.
Computing device 100 may also contain communications connection(s)
112 that allow the device to communicate with other devices. Each
such communications connection 112 is an example of communication
media. Communication media typically embodies computer-readable
instructions, data structures, program modules or other data in a
modulated data signal such as a carrier wave or other transport
mechanism and includes any information delivery media. The term
"modulated data signal" means a signal that has one or more of its
characteristics set or changed in such a manner as to encode
information in the signal. By way of example, and not limitation,
communication media includes wired media such as a wired network or
direct-wired connection, and wireless media such as acoustic, radio
frequency (RF), infrared and other wireless media. The term
computer-readable media as used herein includes both storage media
and communication media.
Computing device 100 may also have input device(s) 114 such as
keyboard, mouse, pen, voice input device, touch input device, etc.
Output device(s) 116 such as a display, speakers, printer, etc. may
also be included. All these devices are generally known to the
relevant public and therefore need not be discussed in any detail
herein except as provided.
Notably, computing device 100 may be one of a plurality of
computing devices 100 inter-connected by a network 118, as is shown
in FIG. 1. As may be appreciated, the network 118 may be any
appropriate network, each computing device 100 may be connected
thereto by way of a connection 112 in any appropriate manner, and
each computing device 100 may communicate with one or more of the
other computing devices 100 in the network 118 in any appropriate
manner. For example, the network 118 may be a wired or wireless
network within an organization or home or the like, and may include
a direct or indirect coupling to an external network such as the
Internet or the like.
It should be understood that the various techniques described
herein may be implemented in connection with hardware or software
or, where appropriate, with a combination of both. Thus, the
methods and apparatus of the presently disclosed subject matter, or
certain aspects or portions thereof, may take the form of program
code (i.e., instructions) embodied in tangible media, such as
floppy diskettes, CD-ROMs, hard drives, or any other
machine-readable storage medium wherein, when the program code is
loaded into and executed by a machine, such as a computer, the
machine becomes an apparatus for practicing the presently disclosed
subject matter.
In the case of program code execution on programmable computers,
the computing device generally includes a processor, a storage
medium readable by the processor (including volatile and
non-volatile memory and/or storage elements), at least one input
device, and at least one output device. One or more programs may
implement or utilize the processes described in connection with the
presently disclosed subject matter, e.g., through the use of an
application-program interface (API), reusable controls, or the
like. Such programs may be implemented in a high-level procedural
or object-oriented programming language to communicate with a
computer system. However, the program(s) can be implemented in
assembly or machine language, if desired. In any case, the language
may be a compiled or interpreted language, and combined with
hardware implementations.
Although exemplary embodiments may refer to utilizing aspects of
the presently disclosed subject matter in the context of one or
more stand-alone computer systems, the subject matter is not so
limited, but rather may be implemented in connection with any
computing environment, such as a network 118 or a distributed
computing environment. Still further, aspects of the presently
disclosed subject matter may be implemented in or across a
plurality of processing chips or devices, and storage may similarly
be effected across a plurality of devices in a network 118. Such
devices might include personal computers, network servers, and
handheld devices, for example.
Real Property Market Value Insurance Policy
In various embodiments of the present innovation, and turning now
to FIG. 2, a real property market value insurance policy 10 is
provided to cover a loss experienced by an owner 12 of a piece of
real property 14 when the real property 14 loses market value,
either due to overall market conditions or due to a specific event
in connection with the real property 14 and as defined by the
policy 10. The policy 10 may be purchased either when the owner 12
purchases the real property or after such purchase. The policy
provides that if the owner experiences a loss in the value of the
real property as defined by the policy, the issuer 16 of the
policy, which is presumably an insurance company, will pay out an
amount as defined by the policy to the owner or an assignee
thereof.
As should be understood, the real property 14 may be most any real
property, including land, land with improvements thereon such as
for example a house, improvements without attached land, such as
for example a condominium apartment or a co-operative apartment
among other things, improvements in non-traditional forms, such as
for example time-shared property, and the like. Moreover, the real
property 14 may be residential property, commercial property,
property held in trust, etc. Note that the owner 12 of the real
property 14 insured by the market value insurance policy 10 likely
already has a more traditional property insurance policy 18 on the
property 14. Accordingly, it should be understood that the policy
10 of the present innovation is in addition to such more
traditional property insurance policy 18 and is intended to cover
market value losses that are not already covered by such more
traditional property insurance policy 18.
The market value of the real property 14 should be understood to be
the value of the property 14 such as may be obtained by the owner
12 if sold to a willing buyer in an arm's length transaction. Thus,
the market value of the property 14 should be valued according to
an appraisal of such property 14 as may be performed by the average
competent appraiser. Note here that the market value is not
necessarily represented by a purchase price paid by the owner 12,
for the reason that the owner 12 may have paid too much or too
little, and at any rate the purchase price may have been affected
by unusual circumstances particular to the owner 12 and the seller
that sold the property 14 to the owner 12.
The market value policy 10 as purchased by the owner 12 as was set
forth above intended to cover losses not covered by the traditional
policy 18, although some overlap between the policies 10, 18 may
nevertheless occur. Accordingly, if as was set forth above a tree
is blown down and falls into a structure on the real property 14,
the property insurance policy 18 would typically cover the cost to
repair the structure, and the market value policy 10 would cover
the cost to replace the fallen tree with a similar tree, especially
inasmuch as the fallen tree represents a loss of value to the real
property 14.
More generally, the property insurance policy 18 would typically
cover losses to structures on real property 14 and related
improvements. In contrast, the market value policy 10 would cover
at least some losses to natural features on real property 14 such
as trees, rock formations, ponds, shrubs, etc., as well as at least
some losses that are intangible, such as the loss of a pleasant
view, the loss of quiet surroundings, the loss of a pleasant
environment without objectionable odors, sounds, sights,
activities, etc. Significantly, the market value policy 10 may
cover losses to market value from external forces that are both
intangible and not arising from adjacent neighbors, including
losses of market value from overall market conditions such as a
real estate bust, overall financial conditions such as a recession,
toxic chemical spills, and the like.
The loss of market value covered by the policy 10 may be any
appropriate loss of market value. For example, the loss may be
defined as a devaluation of the real property 14, such as may occur
during a downturn in real estate values in general or otherwise.
Alternately or in addition, the loss may be defined as a
devaluation arising from a specific action, such as for example the
loss of a view, the commencement of an objectionable activity on
adjacent property, the loss of a natural feature on the property
such as a tree that was considered to add value to the real
property 14, etc.
Notably, the loss may be defined by the policy 10 to arise when the
owner 12 suffers the devaluation and before the owner 12 sells the
property 14 at a loss, when the owner 12 sells the property 14 at a
loss, when the owner appraises the property 14, perhaps in
connection with pledging same as collateral, or when the owner
attempts to sell the property 14 and cannot do so for lack of a
buyer, among other things. Notably, inasmuch as the property 14 may
regain value that would accrue to the owner 12 if the loss is paid
before the property 14 is sold, care should be taken not to reward
the owner 12 for a temporary loss that could later be followed by a
gain. For example, the insurance policy 10 may require that payment
on a claim for a loss incurs a lien on the property 14 so as to
offset the payment with any future gain when the property 14 is
sold.
The amount of the loss may be defined by the policy 10 in any
appropriate manner. For example, the loss may be defined based on
the purchase price paid by the owner 12 for the property 14 or an
appraisal of the property 14 when the policy 10 is issued, and an
appraisal of the property 14 at the time the loss arises. Further,
the amount of the loss may be subject to a deductible amount that
is either a fixed value or a percentage of the amount of the loss,
and may be limited to a minimum and/or maximum value before or
after any deductible is applied. Further, the loss may be limited
to a particular time frame, such as for example only between five
and ten years after the policy 10 is issued, and perhaps only if
the policy 10 remains in force when the loss arises.
Notably, if the owner 12 of an insured piece of property 14 makes a
claim for a loss that arises in connection therewith, the claim
once approved can be paid based on a calculated value of the loss
of market value and after taking into consideration any deductibles
of other loss limitations. Alternately, and if advisable, the
issuer 16 may decide to take a remediating action that would
restore the market value or a portion thereof so as to mitigate
such payment on the claim. For example, if a loss of 40,000 USD is
claimed based on the destruction of a tree on the real property 14
but the cost to restore the property 14 by replacing the tree is
20,000 USD, the issuer 16 would likely choose replacing the tree
rather than paying out the 40,000 USD claim.
Note here that if remediation restores only a portion of market
value lost, the remaining portion likely is compensated on a cash
basis. Note too that the decision on whether to remediate at least
a portion of a loss should take into account not only the current
cost to remediate but also possible future costs. For example,
replacing the tree may cost the 20,000 USD set forth above, but it
may also be likely that the replacement tree could also be
destroyed, in which case the cost could be another 20,000 USD or a
decision to pay the entire 40,000 USD. Thus, paying 20,000 USD to
remediate could save 20,000 USD or could lead to paying a total of
40,000 USD or even 60,000 USD or more.
Presumably, the policy 10 as issued includes terms to guard against
any fraud that the owner 12 may attempt to perpetrate. For example,
to guard against an artificial loss, such as for example may be
achieved by selling the property 14 at an artificially low price,
the policy 10 may require that each loss be proved by an appraisal
of the property 14 at the time the loss arises, and that the issuer
16 can challenge such appraisal as appropriate. More generally, to
guard against any fraud, the policy 10 may exclude certain losses,
such as for example losses that occur by the unreasonable action or
inaction of the owner 12, losses that the owner 12 could reasonably
have prevented, losses due to negligence or incompetence on the
part of the owner 12, and the like.
The policy 10 may be established by the owner 12 when the owner 12
either purchases the property 14 or pledges same as collateral, or
at any other time. In any case, the property 14 should be appraised
to ascertain the value thereof for purposes of defining any future
loss. The policy 10 as purchased may specify a one-time paid up
premium or recurring premiums, and may specify that the loss must
occur while the policy 10 is in force. As was alluded to above, the
issuer 16 of the policy 10 is typically an insurance company but
can be another type of company or even an individual.
Turning now to FIG. 3, it is seen that an owner 12 wishes to
purchase a real property market value insurance policy 10 from an
issuer 16 with regard to a piece of real property 14. Accordingly,
the owner 12 requests such a policy 10 from the issuer 16 (301). In
response, the issuer 16 defines a base market value for the
property 14 (303), either as a purchase price if the owner 12 is
purchasing the property 14 or has recently purchased the property
14, or as an appraised value of the property 14 as provided by an
appraiser, defined a premium (305), and issues the policy 10 to the
owner 12 of the property 14 (307).
In one example, the policy 10 is issued for a predetermined period
such as a year, during which the terms of the policy 10 including a
premium paid and a base market value for the property 14 remain
constant. The policy 10 can then be renewed for a like period,
although perhaps with a different premium and/or other terms.
Notably, the base market value of the property 14 as set forth in
connection with the renewed policy 10 may be adjusted or may remain
constant. If adjusted, such adjustment may be based on a new
appraisal or on a defined mathematical formula. In some
implementations, the premiums paid by the policy holder (e.g.,
owner 12) may convert into an annuity if the owner commits the
policy 10 for a predetermined period (e.g., 10 years) and does not
file for a claim. This has the added attraction of providing a
savings aspect to the policy 10.
As is usual, the premium established with regard to the policy 10
is based on a calculation of the risk of loss that is incurred in
connection with the policy 10. Thus, the premium is established
from a variety of factors, including but not limited to the base
market value, market volatility at the time the policy 10 is
established, the location of the real property 14, and particularly
compiled statistics regarding types of potential losses that may
result in a claim under the policy and average amounts thereof.
Such statistics are generally known or should be apparent to the
relevant public and therefore need not be set forth herein in any
detail other than that which is provided. Notably, such statistics
should take the location of the real property 14 into account,
especially inasmuch as the market value for any piece of property
14 is often highly dependent on the location thereof.
Returning to FIG. 3, it is seen that the owner 12 makes a claim on
the policy 10 based on having suffered a loss in the market value
of the property 14 as a result of some loss event (309). For
example, the loss event may be the sale of the property 14 at a
loss, or else a loss as defined by the policy 10 that occurs prior
to such a sale. In response, the issuer 16 processes the claim
(311) by determining among other things that the loss is covered by
the policy 10, a market value for the property 14 such as may be
obtained from an appraisal, and that the loss is not fraudulent or
otherwise the fault of the owner 12.
Presuming that the claim is approved, the amount to be paid is
calculated based on the difference between the base market value
for the property 14 as set forth in the policy 10 and the market
value when the loss arose, and also based on any deductible or
other limitations on the loss as set forth in the policy 10 (313).
Thereafter, the amount of the loss as adjusted by any deductibles
or limitations is paid to the owner 12 (315), or else the issuer
takes an appropriate remediating action if available, advisable,
and capable of remediating the loss as experienced by the owner 12
(317).
Turning now to FIG. 4, it is seen that from the point of view of
the issuer 16, providing the policy 10 to the owner 12 with regard
to a piece of real property 14 thereof is performed generally in
the following manner. Preliminarily, the issuer upon being
requested to issue the policy 10 as at 301 performs an assessment
regarding the risks incurred by issuing a policy 10 to the owner 12
covering the real property 14. In such a assessment, and referring
also to FIG. 5, the issuer 16 identifies a number of likely types
of events that may cause a loss in the market value of the property
14 (first column in FIG. 5) (401 in FIG. 4), estimates a
probability of each type of event occurring during the term of the
policy 10 and also the impact of each type of event on the base
market value of the property 14 (second and third columns) (403,
405), and based on the estimated probability and impact of each
type of event determines whether each type of event is to be
covered by the policy 10 (fourth column) (407). Also, the issuer 16
may in addition to deciding to cover a particular type of risk may
decide on appropriate exclusions, pre-existing conditions, and
other limitations that are to be included in the policy 10.
Generally, although by no means exclusively, the issuer 16 would
not cover a type of event that has too high a probability or that
has too high an impact, or any type of event for which the risk is
not well-understood for effective pricing. For example, and as
shown in FIG. 5, the issuer 16 has decided to cover losses due to
fire, flood, wind, and land deformation (mudslide, e.g.) damage,
each of which has a relatively low probability of occurrence, but
has decided to forego covering recession, a local real estate
crash, chemical damage, drought, and environmental regulatory
changes. With regard to all but chemical damage, and as can be
seen, the probability of loss is relatively high, and therefore the
risk is to be avoided by the issuer. In contrast, the probability
of loss for chemical damage is relatively low but the loss impact
is high, and therefore also to be avoided by the issuer 16.
In any event, for each type of event to be covered, the issuer 16
then defines minimum and maximum losses expected from such an event
occurring (fifth and sixth columns) (409), as the base market value
for the property 14 defined as at 303 multiplied by a range of the
impact of the loss from the third column. Based thereon, the issuer
16 then defines a maximum probable loss for each type of event as
the maximum loss expected (sixth column) (411) multiplied by the
probability of the event occurring (second column). The maximum
probable losses for all types of events covered are then summed to
arrive at an expected cost to the issuer 16 in connection with
issuing the policy 10 (413).
Thereafter, the issuer may set the premium for the policy 10 based
on the expected cost as well as other factors (415). Such other
factors are generally known or apparent to the relevant public and
therefore need not be set forth herein in any detail other than
that which is provided. Generally, in addition to the expected
cost, the premium is based on an administrative cost to underwrite,
quote, fulfill, and otherwise service the policy 10, a profit
margin, and perhaps an adjustment as may be necessary or desirable
to be competitive with other issuers 16. Of course, assuming the
policy 10 is acceptable to the owner 12, the issuer 16 issues the
policy 10 thereto in return for payment of the premium set as at
415 (417).
Of course, the issuer must also service the policy 10 by billing
for premiums, collecting the billed premiums and investing the
proceeds as may be deemed advisable, processing claims, handling
renewals, handling appraisals, and other typical insurance
functions. Such functions as should be understood are generally
known or should be apparent to the relevant public and therefore
need not be set forth herein in any detail. Accordingly, such
insurance functions may be performed in any appropriate manner
without departing from the spirit and scope of the present
innovation.
In some implementations, the owner 12 may want to protect a future
market value of a piece of real property 14. For example, the owner
12 may want to protect the future market value of the piece of real
property 14 in 5, 10 or 15 (or more) years. Referring again to FIG.
2, in another aspect, the real property market value insurance
policy 10 is provided with a component to cover a loss experienced
by an owner 12 of a piece of real property 14 when the real
property 14 does not reach a expected future market value due to
overall market conditions and as defined by the policy 10. The
policy 10 may be purchased either when the owner 12 purchases the
real property or after such purchase. The policy provides that if
the owner experiences a loss because the real property 14 fails to
attain an expected future value of the real property as defined by
the policy, the issuer 16 of the policy, which is presumably an
insurance company, will pay out an amount as defined by the policy
to the owner or an assignee thereof upon a conveyance of the real
property. Here again, the real property 14 may be any real
property. The expected future market value of the real property 14
should be understood to be the value of the property 14 as may be
obtained by the owner 12 if the real property 14 is sold to a
willing buyer in an arm's length transaction at some point in the
future.
A loss (i.e., a failure of the real property 14 to attain the
expected future market value) may be any appropriate failure to
obtain the expected future market value in accordance with market
conditions external to the real property 14. For example, the loss
may be defined as a devaluation of the real property 14, such as
may occur during a downturn in real estate values in general or
otherwise. Alternately or additionally, the loss may be defined as
a devaluation arising from a specific action, such as changes in
local zoning, degradation of the local school system, population
changes, etc.
The amount of the loss may be defined by the policy 10 in any
appropriate manner. For example, the loss may defined based on the
expected future market value defined by the owner 12 for the
property 14 in the policy 10 and an appraisal of the property 14 at
the time the loss arises (i.e., when the property is sold in the
future). Further, the amount of the loss may be subject to a
deductible amount that is either a fixed value or a percentage of
the amount of the loss, and may be limited to a minimum and/or
maximum value before or after any deductible is applied. Further,
the loss may be limited to a particular time frame, such only
between five and ten years after the policy 10 is issued, and
perhaps only if the policy 10 remains in force when the loss
arises.
Turning now to FIG. 6, there is an exemplary operational flow of
the processes performed in accordance with a policy having an
expected future market value component. At 601, an owner 12 wishes
to purchase the policy 10 having the expected future market value
component from an issuer 16 with regard to a piece of real property
14. Accordingly, the owner 12 requests such a policy 10 having the
expected future market value component from the issuer 16. The
owner 12 may define the expected future market value, and a future
date or range of future dates, at which the owner 12 would like to
insure that the real property has a fair market value of the
expected future market value. For example, the owner 12 may define
the expected future market value to be $300,000 at a point in time
10 years in the future or within a range of 8-12 years in the
future.
At 603, the issuer 16 performs an analysis to determine what the
expected future market value may be in view of the trends, such as
historical appreciation, expected demand, expected supply, expect
growth of the metropolitan area in which the property 14 is
located, desirability of the local area, rate of inflation, jobs in
the local area, mortgage rate trends, access to recreation,
historical appreciation, etc. With reference to FIGS. 7 and 8,
there is described an exemplary operational flow of the processed
performed at 603. At 701, the issuer 16 upon being requested to
issue the policy 10 performs an assessment regarding the risks
incurred by issuing a policy 10 to the owner 12 covering the real
property 14. In such an assessment the issuer 16 identifies a
number of likely types of events, conditions and factors as shown
in FIG. 8 that may affect the expected future market value of the
property. The events, conditions and factors may be those have a
statistically relevant effect on the future expected market value
of the property 14.
At 703 and 705, the issuer 16 may estimate a probability of each
type of event, condition or factor occurring during the term of the
policy 10 and also the impact of each type of event, condition or
factor on the expected future market value of the property 14
(second and third columns of FIG. 8). The issuer 16 may limit the
estimate of future expected market value to certain types of events
and may not cover events that have too high a probability of
occurring, that have too high an impact, or have a risk is not
well-understood for effective pricing. For example, and as shown in
FIG. 8, the issuer 16 has decided to cover only certain events,
which may be input to a model to determine the future expected
market value. Other events, such as losses due to fire and flood,
may not have well understood long-term effects. For example, there
may not be long term data for a geographic region on how a flood
may affect home prices in a particular geographic region.
In some implementations, the events may be tailored and weighed
differently for different geographic regions. For example,
projected growth may be lower in Northern states and higher in
Southern states. Negative effects of infrastructure may be greater
in rapidly developing areas that may not meet the needs of the
growth, as compared to established areas that already serve the
needs of the population.
At 707, the issuer may set the premium for the policy 10 based on
the expected cost as well as other factors. The premium may be
based on the current fair market value and the likelihood that the
property 14 will attain the expected future market value determined
at 603 and events that may affect the expected future market value.
The information obtained at 701-705 may be modeled to determine the
expected future market value. The model may employ a simple linear
equation to weigh the factors, a neural network, etc. In some
implementations, the information may be modeled in a generalized
linear model (GLM) to perform a least squares regression to
determine the predictive value of each of the events.
The modeled expected future market value for a particular property
14 may yield a distribution curve, such as shown in FIG. 9. The
distribution curve may be used to set the premiums 902-910. For
example, if it is extremely likely that the property 14 will meet
the expected future market value at the time or range of times
identified by the owner 12 at 601, then the premium 902 may be set
to a relatively low amount. If, however, it is unlikely that the
property 14 will meet the expected future market value at the time
or range of times identified by the owner 12 at 601, then the
premium 910 may be set to a relatively high amount. In some
implementations, the insurer 16 may not decide not to issue a
policy if the expected future market value requested at 601 is more
than a predetermined number of standard deviations from the mean
(e.g., 3). The process 700 may be repeated on a periodic basis to
adjust the premium and/or risk factors associated with the policy
10. The policy is then ready to be issued to the owner 12 at
717.
Returning to FIG. 6, at 605, a premium amount is conveyed to the
owner 12 requesting the policy 10. If acceptable to the owner, then
at 607, the issuer 16 may issue the policy 10 to the owner 12 of
the property 14, and the owner 12 makes premium payments to keep
the policy 10 in force. The policy 10 may then be renewed for a
subsequent future expected future market value and a subsequent
future time or range of times, although perhaps with a different
premium and/or other terms.
At 609, at the date or within the range of dates defined at 601,
the owner 12 makes a claim on the policy 10 based on having
suffered a loss in the expected future market value of the property
14 as a result of some loss event. For example, the loss event may
be the sale of the property 14 at a loss.
At 611, in response to the claim, the issuer 16 processes the claim
by determining among other things if the loss is covered by the
policy 10, a market value for the property 14 such as may be
obtained from an appraisal, and that the loss is not fraudulent or
otherwise the fault of the owner 12. For example, the issuer 16 may
deny coverage for the loss if the loss was due to a forced sale
(e.g., IRS sale), arson, eminent domain, war, etc.
Presuming that the claim is approved, the amount to be paid is
calculated at 613 based on the difference between the expected
future market value for the property 14 as set forth in the policy
10 and the market value when the loss arose, and also based on any
deductible or other limitations on the loss as set forth in the
policy 10. Thereafter, at 615, the amount of the loss may be
adjusted by any deductibles or limitations is paid to the owner 12,
or the issuer 16 may take an appropriate remediating action if
available at 617, to remediate the loss as experienced by the owner
12. For example, the insurer 16 may purchase the property 14 if it
is determined that will remediate the loss to the owner 12, but
minimize the financial loss to the insurer 16 as the property 14
may be held and/or resold at a high price.
Thus, as described above, the policy 10 may protect an owner 12
from losses occurring in the future if the property 14 fails to
attain an expected future market value.
Conclusion
The programming believed necessary to effectuate the processes
performed in connection with the various embodiments of the present
innovation is relatively straight-forward and should be apparent to
the relevant programming public. Accordingly, such programming is
not attached hereto. Any particular programming, then, may be
employed to effectuate the various embodiments of the present
innovation without departing from the spirit and scope thereof.
In the present innovation, systems and methods provide a market
value insurance policy 10 that covers at least some losses incurred
by an owner 12 due to real estate market value associated with a
piece of real property 14. The policy 10 covers at least some
losses prior to the owner 12 of the real property 14 selling same.
The market value insurance policy 10 is implemented so as to define
risks unique to the market value of the real property 14 and to
avoid fraud by the owner 12.
It should be appreciated that changes could be made to the
embodiments described above without departing from the innovative
concepts thereof. For example, although the present innovation is
set forth primarily in terms of real property 14 comprising land,
such real property need not necessarily include land. Likewise,
although the present innovation is set forth primarily in terms of
an owner 12 of the real property 14 purchasing the policy 10,
another entity may also purchase the property if deemed
appropriate, such as for example a tenant of the real property 14,
a mortgagee, an agent, etc. It should be understood, therefore,
that this innovation is not limited to the particular embodiments
disclosed, but it is intended to cover modifications within the
spirit and scope of the present innovation as defined by the
appended claims.
* * * * *
References